Paul and Lucy Spadoni periodically live in Tuscany to explore Paul’s Italian roots, practice their Italian and enjoy “la dolce vita.”
All work is copyrighted and may not be reprinted without written permission from the author, who can be contacted at www.paulspadoni.com

Thursday, October 29, 2015

In which we learn how to minimize high and hidden foreign money exchange fees while buying a house

We
arrived at Pisa yesterday around noon, rented a car, drove to San
Salvatore, bought a few groceries, and then went to bed for 12 hours
in order to make up our sleep deprivation from the journey. I went to
our bank in Pescia this morning to assure that the bank transfer
needed for our final house payment had also arrived safely, and I not
only confirmed the success of the transfer but also obtained four
cashiers’ checks (called assegni circolari) to give to the
four owners of the house after we sign the final papers tomorrow.

It’s
always a bit stressful for me to have to do new things like going to
an Italian bank when I still haven’t mastered the language, but in
truth, such challenges are among the reasons I like coming to Italy.
It helps me relate to the struggles that my grandparents must have
faced in immigrating to the United States, and it furthers my goal of
learning the language. It would have been easier to have had a
bi-lingual Italian friend accompany me, but I need to stretch myself
and put my lessons to practice.

And
speaking of learning, I’ve discovered much about how to move money
from one country to the other. We had to transfer an earnest money
payment in April, and then we had to pay the balance in two even
amounts in July and October. It’s not inexpensive to do this, but I
did discover a new service that has saved me more than $5,000, so
it’s worth mentioning in case anyone else reading this has to do
something similar.

The
first step involved opening a bank account in Italy. I am told that
the normal procedure for this involves obtaining an introduction from
someone who already has an account at the bank, a long-standing
tradition in Italy, where word-of-mouth recommendations are still
highly valued. Being an avid “do-it-yourselfer” when it comes to
my Italy hobby, I first tried going to a bank myself last spring. It
was the bank directly across the street from the house we are buying,
so I sort of figured that the house itself was my source of
introduction. I was offered the possibility of starting a bank
account there, but the cost was about 100 euros a year. While
considering this, I also tried to sign up with the online bank ING
Direct, but I learned that I must be a resident of Italy to qualify
as a customer there. Then our friend Elena Benvenuti offered to
introduce me to her banker at the Banca di Pescia, a credit union.
Besides having the advantage of Elena to translate, the fees were
much lower than the first bank I had tried, so I signed up for an
account.

Then
came the issue of transferring the money. I first called my bank in
Gig Harbor to ask about the cost of a transaction. It would only be a
flat fee of $50 for an international transfer, I was told. Wow, what
could be wrong with that? Let’s do it. But not so fast . . . I
discovered that after the money goes from my bank, it hits an
international bank that tacks on about 3.5 percent more than the
actual dollar/euro exchange rate – all without actually mentioning
this to the customers, who may never realize this is happening if
they don’t compare the rate quoted by the bank with the actual
exchange rate. I noticed this right away because I was checking the
mid-market rate on Google almost daily so that I could do the
exchange at a time when it was more favorable. I knew how much I
needed to send in dollars to make the first payment in euros, but
when my bank told me how many euros would be deposited into my
Italian account, something was wrong with the math.

Well,
my banker explained, the international banks use a different exchange
rate. They don’t call it a fee, but basically they skim about 3.5
percent off of each exchange, and they do it so seamlessly that most
customers either don’t realize it or don’t think there is any
other way around this. We are paying 160,000 euros for our house,
plus another 15,000 or so in taxes and fees to our real estate
agency, notaio and geometra. Translate 175,000 euros
into dollars and then add 3.5 percent, and that comes to around
$7,000 I’d be paying in exchange fees. The same is true for Western
Union, which says transfers have a fee of zero, but the exchange
rate they use is about 10 percent higher than the actual mid-market
rate.

After
doing some research on the web, I found many people complaining about
the hidden dollars that international banks are collecting on money
transfers. I also found that there are new alternatives available
that technically don’t involve changing currencies and thus avoid
the international bank exchange rates. The first and best known of
the new currency conversion companies is TransferWise, founded in
2011 by two Estonian men who were living and working in London when
they hatched the idea. One was being paid in pounds but had bills to
pay in Estonia, and the other was being paid in euros but needed
pounds for his living costs. They came up with a way of sending money
into each other’s accounts, which meant they didn’t have to pay
extra fees for the exchange.

Soon
they converted this concept into a service that everyone can use.
From the customer's point of view, money transfers with TransferWise
seem no different from conventional money transfers: The customer
chooses a recipient and a currency, the money to be transferred is
taken from his or her account, the transferring company charges for
the service, and a few days later, the recipient receives the payment
in the chosen currency. The difference lies in how TransferWise
routes the payment. Instead of transferring the sender's money
directly to the recipient, it is redirected to the recipient of an
equivalent transfer going in the opposite direction, and vice versa,
thus avoiding currency conversion. There is an fee for the
TransferWise service, about $1,400 for moving $200,000, but this is
far less than the unstated surcharge of around $7,000 that I’d pay
to send the same amount through the banking system. I also had to pay
my bank $25 to make a domestic transfer to TransferWise’s bank in
New York.

According to the
Transferwise website: “Banks have been treating people unfairly for
decades. They charge you huge fees when you convert your money to
other currencies. Then they hide more fees in unfair exchange rates.
TransferWise has found a simple way to bypass the banks and make
international money transfers transparent and fair. Like they should
be. The pricing is transparent, the exchange rate is the real one,
the small fee is easy to spot, and we pay out locally in most cases
meaning no receiving fees.”TransferWise is being
credited as a digital innovator that is “shaking up the
business-as-usual model” by The Times of London, which has listed
it on its top 10 “disrupters to watch.” It’s many investors
include Richard Branson, co-founder Max Levchin, former Betfair CEO
David Yu and Wonga.com co-founder Errol Damelin. My most recent transfer
arrived about a week after I sent it, and since it came in euros,
there was no fee added at my bank in Pescia. One added complication
is that the bank manager questioned why the money had been routed
through Estonia and asked for evidence that it was actually my money.
I think this particular concern has more to do with the complicated
banking and legal system in Italy, a country that is famous for
extensive government regulations. It was an added challenge for me to
try to explain in Italian how TransferWise works, and I ended up
referring him to the Italian version of the TransferWise website,
which he loaded and read while I waited.

Now all that remains is a
meeting tomorrow at our notaio’s office to sign the final
papers and make the last payment. If all goes well, we will be handed
our keys!

Footnote: For smaller
payments, we try to use our American credit cards whenever possible.
We have two cards that don’t charge an exchange rate. And when we
need cash, we use our bank ATM cards at Italian bank machines, which
limit our withdrawals to 500 euros per day.

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About Me

First off, before you hassle me about our title, Lucy thought of it. Yes, I know some people may think broad is derogatory, but the etymology is uncertain and she doesn’t find it offensive, and it made me laugh. We have been married since 1974 and are empty-nesters now, which allows me to bring my submerged Italophilia into the open. We first came to live in Italy from February-April in 2011 and have returned during the same months every year. From 2011-2015, we lived in San Salvatore, at the foot of the hilltop city Montecarlo, where my paternal grandparents were born, raised and, in 1908, married. In late 2015, we bought a home in Montecarlo. We come for a variety of purposes: We want to re-establish contact with distant cousins in both Nonno’s and Nonna’s families, we want to learn the language and see what it is like to live as Italians in modern Italy, we like to travel and experience different cultures. Even if we aren’t successful at achieving these purposes, we love Italy and enjoy every moment here, so there is no chance we will be disappointed. I am grateful to God for giving me a wife who is beautiful, clever, adaptable and willing to jump into my dreams wholeheartedly.